Services sector shrinks for seven months

5 Sep 2012, 9:31 am   -   Source: AAP

Australia's services sector has contracted for the seventh month in a row.

Australia's services sector contracted for the seventh straight month in August as cautious consumers and the high exchange rate continue to hurt the industry.

The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI), released on Wednesday, fell 4.1 points to 42.4 in August.

A reading of below 50 indicates a contraction in the sector.

Australian Industry Group (Ai Group) chief executive Inness Willox said weak consumer demand, the high value of the Australian dollar and the impact of the carbon tax contributed to the decline.

"Both sales and new orders slumped sharply in August despite widespread discounting," he said in a statement on Wednesday.

"With wages and other input costs rising, it is not surprising that employment in the sector continued to ease."

Commonwealth Bank senior economist John Peters said that only one of the subsectors covered by the index, finance and insurance, expanded during the month, despite reporting falls in sales and new orders, along with all other subsectors.

"Overall, August was the seventh month on the trot that activity contracted in the services sector," he said.

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